Centre evaluates action after Byju’s auditor resigns

The corporate affairs ministry is examining the nature of enforcement action it needs to pursue in the wake of the resignation of Deloitte Haskins & Sells Llp last week as the auditor for Think and Learn Pvt. Ltd, the parent of Byju’s, said a person aware of the discussions in the government.

The options range from an inquiry in the form of seeking information, an inspection of books of account that is a more formal step meant to check compliance or a full-fledged investigation.

“The enforcement action will depend on the auditor’s report to the government and the gravity of any lapses by the management. If the auditor suspects any fraud, he is under the obligation to report it to the government,” said a person informed about discussions in the government.

Under Section 143 of the Companies Act, a statutory auditor quitting an audit engagement must report to the government any fraud in the company if he has reason to believe that such a thing is happening.

An email sent to the spokesperson for the ministry of corporate affairs (MCA) on Friday seeking comments for the story remained unanswered at the time of publishing.

A spokesperson for Think and Learn said in an email response to queries from Mint on Monday that media reports suggesting that MCA has ordered an inspection into Byju’s were speculative “and denied by us”. “We have not received any such correspondence from MCA regarding this and are not aware of any such inspection,” the spokesperson said, referring to a statement of the company issued on 23 June.

An email sent to Deloitte Haskins & Sells on Monday remained unanswered at the time of publishing.

The auditor alleged not hearing from the company about its audit-readiness for the year ended 31 March 2022 while quitting the audit engagement.

The edtech decacorn has been battling a string of issues that point to weakening corporate governance at the company.

Earlier this month, three of the company’s non-promoter directors on the board resigned. While the company initially denied the development, it released a statement later saying the resignations were due to the shareholding of the investors falling below a certain level.

G.V. Ravishankar, representing Peak XV Partners (formerly Sequoia India), Vivian Vu, representing Chan Zuckerberg Initiative, and Russel Dreinstock, representing Prosus Ventures, resigned from the board, leaving Byju Raveendran, his wife Divya Gokulnath, and brother Riju Raveendran as the only board members.

The company said it is reconstituting its board and is looking to onboard independent members soon.

The resignations come amid the ongoing spat with its bondholders, where the edtech giant has stopped repaying its $1.2-billion loan and sued Redwood Capital Management and others in the New York Supreme Court.

Last month, the company challenged the demand by US lenders to immediately repay a $1.2-billion term loan B (TLB) it raised in November 2021.

The company said it declined to make any more interest payments on the loan until the legal dispute was resolved, thus entering default territory. In its petition, Byju’s categorized its TLB lenders, led by Redwood Capital Management, as “predatory” and moved to disqualify it as a lender.

This was in response to a lawsuit filed by the lenders in Delaware on 8 May, which asked the court to take control of its US entity, Byju’s Alpha.

Amid a delay in filing its financials, the bondholders have been renegotiating the terms of their loans with the company, which has put further pressure on the Byju Raveendran-led startup to efficiently manage its cost of capital.